Sysco to Issue Unsecured Notes to Finance US Foods Merger
Sysco Corporation (SYY) will issue unsecured notes in a public offering, and plans to use the proceeds to pay the cash portion of Sysco's proposed merger with US Foods. In addition, the proceeds will be used to refinance certain indebtedness of US Foods, to pay certain cash flow hedges, to repay Sysco's outstanding commercial paper and to pay some costs related to the merger.
These notes are expected to be issued in six parts, which will mature in a span of 3 to 30 years.
Sysco’s merger with US Foods is currently undergoing a regulatory review process by the Federal Trade Commission (FTC) and is expected to consummate in the third or fourth quarter of calendar 2014. However, Sysco also stated that if the merger does not close or if it terminates on or prior to Oct 8, 2015, Sysco will use the net proceeds for the redemption of each series of notes.
In Dec 2013, Sysco announced its decision to buy US Foods, the second largest player in the foodservice distribution industry, for approximately $8.2 billion, inclusive of debt. The deal will be immediately accretive to earnings per share and generate at least $600 million in synergies over three to four years from both overhead and procurement savings.
The deal is expected to be a strategic fit for both Sysco and US Foods, as together they are expected to improve efficiencies, particularly in supply chain, merchandising and general and administrative activities. The merger will give Sysco increased size and scale and will also provide significant cost savings opportunities. In fact, the merger would help create one of the largest food companies in the country.
However, there are several concerns related to the merger, which may induce FTC to block the possible merger deal of Sysco-US Foods, per the media reports.
FTC is concerned about the fact that the merger might create a monopoly and drive up costs for thousands of restaurants, hospitals and hotels nationwide who have supply contracts with the companies. In order to seek a solution, the commission is also reportedly mulling alternatives such as mandating Sysco and US Foods to divest assets to competitors.
Sysco carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked companies in the food industry include Aramark (ARMK), The Hain Celestial Group, Inc. (HAIN) and TreeHouse Foods Inc. (THS). While Aramark and Hain Celestial sport a Zacks Rank #1 (Strong Buy), TreeHouse Foods holds a Zacks Rank #2 (Buy).
Read the Full Research Report on HAIN
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